Expedia 2013 Annual Report Download - page 113

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As of December 31, 2013, we had federal, state, and foreign net operating loss carryforwards (“NOLs”) of
approximately $5 million, $23 million and $105 million. If not utilized, the federal and state NOLs will expire at
various times between 2014 and 2033. Foreign NOLs of $74 million may be carried forward indefinitely, and
foreign NOLs of $31 million will expire at various times between 2016 and 2033.
As of December 31, 2013, we had a valuation allowance of approximately $33 million related to certain
NOL carryforwards for which it is more likely than not the tax benefit will not be realized. The valuation
allowance increased by $20 million from the amount recorded as of December 31, 2012 due to the recording of a
valuation allowance on cumulative foreign net operating losses for which realization is no longer certain. The
amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable
income during the carryforward period change, or if objective negative evidence in the form of cumulative losses
is no longer present and additional weight may be given to subjective evidence such as our projections for
growth.
We have not provided deferred U.S. income taxes on undistributed earnings of certain foreign subsidiaries
indefinitely reinvested outside of the U.S. The total amount of such earnings was $794 million as of
December 31, 2013. To date, we have invested the majority of these foreign earnings outside of the United States
and we do not intend to repatriate these earnings to fund U.S. operations. In the event we distribute such earnings
in the form of dividends or otherwise, we may be subject to U.S. income taxes. Due to complexities in tax laws,
uncertainties related to the timing and source of any potential distribution of such earnings, and other important
factors such as the amount of associated foreign tax credits, it is not practicable to estimate the amount of
unrecognized deferred U.S. taxes on these earnings.
Reconciliation of U.S. Federal Statutory Income Tax Rate to Effective Income Tax Rate
A reconciliation of amounts computed by applying the federal statutory income tax rate to income from
continuing operations before income taxes to total income tax expense is as follows:
Year Ended December 31,
2013 2012 2011
(In thousands)
Income tax expense at the federal statutory rate of 35% $105,243 $122,520 $140,725
Foreign tax rate differential (87,729) (78,094) (74,431)
State income taxes, net of effect of federal tax benefit 3,994 1,280 5,262
Unrecognized tax benefits and related interest 12,096 16,038 8,297
Change in valuation allowance 19,167 (11,838) (7,740)
Hawaii pay-to-play penalties 14,404
trivago acquisition stock-based compensation 19,825
Other, net (2,665) (2,828) 3,618
Income tax expense $ 84,335 $ 47,078 $ 75,731
Our effective tax rate in 2013, 2012 and 2011 was lower than the 35% federal statutory income tax rate due
to earnings in foreign jurisdictions, primarily Switzerland, where the statutory income tax rate is lower.
Uncertain Tax Positions
We account for uncertain tax positions based on a two-step process of evaluating recognition and
measurement criteria. The first step assesses whether the tax position is more likely than not to be sustained upon
examination by the tax authority, including resolution of any appeals or litigation, based on the technical merits
of the position. If the tax position meets the more likely than not criteria, the portion of the tax benefit greater
than 50% likely to be realized upon settlement with the tax authority is recognized in the financial statements.
F-31